Primark Agrees to Pay Suppliers 370 Million Pounds for its Orders

A woman walks her dog past a closed Primark store in downtown Madrid, Spain, 20 March 2020. The pandemic caused an unexpected economic crisis. Spain faces the sixth day of national lockdown on 20 March in an effort to slow down the spread of the pandemic COVID-19 disease. According to the latest figures provided by the health ministry, there are at least 18,074 confirmed coronavirus infections throughout Spain, while 832 people have died so far in the Mediterranean country.
Coronavirus crisis, Madrid, Spain - 20 Mar 2020

CREDIT: KIKO HUESCA/EPA-EFE/Shutterstock (10589076d)

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The Irish-fast fashion retailer said Monday that it’s now able to pay 370 million pounds ($455 million) for additional product orders it had initially intended to cancel by invoking a force majeure clause in its vendor contracts. Now, Primark will be taking all of the in-production and finished product planned for shipment by April 17. Some of those orders, however, will be settled through extended payment terms, which is part of what the retailer called a “mitigating option” for getting through the coronavirus-inflicted crisis.

“Primark had previously committed to paying for orders that were in transit or booked for shipment by 18 March. This now brings Primark’s total stock both owned and committed to nearly £2bn [$2.46 billion] while the stores remain closed,” the retailer’s statement said.

The move comes in addition to Primark’s wage fund commitment earlier this month, which promises to pay workers for producing its orders. The retailer also expressed hopes of placing future orders for Fall/Winter stock “once there is further clarification of the reopening of stores.”

“We have been in close and regular contact with our suppliers over the last few weeks to find a way forward, and to pay for as much of the previously ordered product as possible,” Primark CEO Paul Marchant said. “Transparency and clarity have been at the heart of our longstanding relationships with our supply base and we were obviously disappointed that we were not initially able to commit to this stock. Our partnerships with our suppliers are invaluable and we want to continue to support them as we navigate our way through this global crisis.”

The world may be starting to see a faint, dim light at the end of the coronavirus tunnel, at least where the reopening of stores is concerned.

Spanish clothier Mango on Monday reopened four stores in Austria and 16 in The Netherlands, bringing its total number of operating stores to 135. And plans are in place to open nearly 500 more by the end of April. If things go well and Mango’s continued cleaning, limited hours and supply of personal protective equipment for both shoppers and staff proves safe for keeping COVID-19 at bay, more retailers may look to restart their stores.

Primark, however, won’t do so “until we have suppressed this disease,” parent company Associated British Foods’ CEO George Weston said in interim results released Monday.

In the meantime, Primark will be facing some financial challenges.

“At Primark we have 68,000 of our people receiving furlough payments from governments across Europe, without which we would have been forced to make most redundant,” Weston said. “From making sales of £650m [$799 million] each month, since the last of our stores closed on 22 March, we have sold nothing. One of the world’s great clothing retailers is entirely shut. We have paid for in full, and taken delivery of, very large amounts of completed stock which we can’t sell for now.”

As such, Primark has taken a 284 million pound ($350 million) charge for inventory loss for goods that will likely need to be marked down once stores reopen. But ABF’s CEO believes the company will emerge from its dark days.

“Primark is managing through an extraordinarily challenging period after all of its stores closed in March and our management response to mitigate the cash outflows was swift and proportionate,” Weston said. “Although uncertainty remains, we have the people and the cash resources to meet the challenges ahead.”